What the DOJ Single Firm Conduct Report Didn’t Say:
FTC Enforcement in Patent Settlements and
Standard Setting
Chris Compton
November 25, 2008
Strafford Teleconference on
Single Firm Conduct Enforcement Guidance: Avoiding
Antitrust Violations Given Conflicting FTC and DOJ Positions
DOJ and FTC Agree to Disagree on Section 2
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Sept. 8, 2008 Single Firm Conduct Report
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No mention in Report of FTC’s enforcement efforts in pharma cases
or standard setting
– FTC Act Section 5 vs. Section 2 of the Sherman Act
– Philosophical differences even re Section 2
Previous splits:
– Pharma reverse payments cases
– Leegin resale price maintenance
– linkLine price squeeze case
“When people agree with me, I always feel I must be wrong.”
Oscar Wilde
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FTC’s Lonely Battle Against Reverse Payment
Patent Settlements
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Takes position that reverse payments with agreed date for
entry by generic competitor harms consumers.
– DOJ agrees strength of patent should be part of rule of
reason assessment of Hatch-Waxman settlements
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FTC reversed (11th Cir.) in Schering-Plough, 2005
– DOJ disagreed re cert, which was denied.
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Other circuits adverse to FTC:
– Geneva v. Valley Drug, 11th Cir 2003
– In re Tamoxifen, 2d Cir. 2006
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In re Ciprofloxacin, Fed. Cir. (Oct. 15, 2008).
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FTC’s History of SSO Enforcement
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(1996)
– Alleged intentional failure to disclose patents, violating
VESA rules. Consent decree not to enforce patents
– Dissent re absence of knowledge/intent, market power.
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(2003)
– Alleged affirmative misrepresentations to California Air
Resources Board
– ALJ: Noerr-Pennington immunity. Later settled as
condition to FTC approval of Chevron merger.
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(2002-present)
– Alleged failure to disclose IP to JEDEC
– ALJ dismissed case: no duty shown. FTC found Section 2
and Section 5 violations; imposed licensing remedy.
– Rambus successfully appealed to DC Circuit.
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N-Data Consent Decree (Jan 2008)
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Predecessor National gave1994 commitment letter to $1000
license; new letter by Vertical in 2002, uncontested by IEEE:
intent to seek FRAND terms.
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N-Data bought IP, sought to enforce at higher rates.
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FTC: Violation of Section 5.
– Remedy in consent: $1000 license except for those who
refuse. Extends to later improvements, related standards.
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3-2 majority found liability as both “unfair method of
competition” and “unfair act or practice.”
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Controversy erupts
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N-Data Dissents
• Commissioner Kovacic: critical of loose analysis,
concern about follow-on treble damage litigation in
states.
• Chairman Majoras:
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Section 5 should rarely go beyond Section 2
No deception within the SSO
Other participants had changed commitments
No objection by IEEE to 2002 changed commitment
letter
– Dubious market power, different bundle of IP
– IEEE and participants able to protect themselves
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Reactions to N-Data
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AAI seeks expansion of Section 5 enforcement to FRAND
disputes in petition to FTC re Rembrandt
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Majority of Public Comments raise concerns about:
– Getting SSOs involved with FRAND disputes
– Reducing SSO flexibility in conduct, IP policies
– Expanded antitrust risk for SSO participants
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DOJ’s David Meyer reflects disapproval in paper (Mar. 2008)
– ”When is patent holdup in the SSO context an antitrust
problem?”
– SSOs need flexibility, encouragement to craft own solutions
– Participants should not look to antitrust as “a shield” vs. patent
owners
– Too-easy antitrust claims will “threaten the efficiency of the
standards development process.”
– Antitrust should focus on process, not whether prices seem too
high.
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Meanwhile, FTC Defeat in Rambus (April 2008)
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FTC’s alternative theories of deceptive conduct. But for
deception, JEDEC would have either:
– (1) Chosen different technology
Remand to for further evidentiary proceedings
– (2) Secured FRAND commitment from Rambus
Loss of opportunity to secure higher prices not “antitrust
harm”
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“Staggering lack of defining details” in SSO’s IP disclosure
policies raised doubts about deception
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Will FTC seek Supreme Court review based on conflict with 3d
Circuit in Broadcom v. Qualcomm?
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FTC Remains Adamant
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Despite defeats in Rambus and Ciprofloxacin, divergence
with DOJ, Commissioner Rosch’s position is clear: Expand
use of Section 5.
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His May 2008 paper particularly hostile to “trolls,” who “lie in
wait” before enforcing IP.
– “Trolls” broadly defined to reach most NPEs
– Section 5 may even reach lawfully acquired, valid IP if
enforcement is delayed until after “lock in.”
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Risks of Expanded FTC Enforcement
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Encourage treble damage suits
– E.g., Oct. 8, 2008: Zoran sues DTS for FRAND violations.
Alleged violations of Section 2; patent misuse.
Fraudulent promise alleged, supporting “unlawful acquisition of
Monopoly Power.”
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Discourage participation in SSOs or make the standardsetting process less efficient
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Widen substantive antitrust policy gap with DOJ
– With less clear guidance to business
“The business of government is to keep government out of
business—that is, unless business needs government aid.”
Will Rogers
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Open Issues? Stay Tuned
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Open Issues:
– Will the FTC take Section 5 into FRAND disputes?
– Will the courts support FTC’s expansive view of Section 5?
– Do NPEs bear special scrutiny and risk?
– What will EC do with Rambus, Qualcomm?
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May be Influenced by:
– FTC next step in Rambus, new appellate guidance
– SSOs move to more clear policies, ex ante negotiation, use of business
review letters
– Reduced patent threat with Supreme Court decisions, PTO changes,
patent reform legislation
– New administration, Assistant AG for Antitrust
“If you’re not confused, you’re not paying attention.”
Anon.
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Charles T. (Chris)
Compton
Charles T. (Chris) Compton plays a leadership role in the firm's antitrust practice, focusing on merger regulatory and intellectual
property issues.
Since joining Wilson Sonsini Goodrich & Rosati in 1980, Chris has overseen the antitrust regulatory work in more than 900 mergers,
acquisitions, and joint ventures—many of which involved formal investigations by the Federal Trade Commission, the Department of
Justice, the European Commission, and other international competition agencies. The firm's record of success, including Hewlett
Packard's $18.7 billion acquisition of Compaq Computer in 2002, has been unparalleled: No Wilson Sonsini Goodrich & Rosati
transaction since 1980 has ever been blocked or abandoned due to an antitrust challenge by a U.S. or foreign competition agency.
Early in his career, Chris served as a litigator on the watershed IBM antitrust cases in the late 1970s at O'Melveny & Myers.
CONTACT:
650 Page Mill Road
Palo Alto, CA 94304
Phone | 650-493-9300
Fax | 650-493-6811
[email protected]
In addition to a wide range of intellectual property litigation, including Lotus v. Borland, Chris has handled antitrust suits involving
alleged price discrimination, refusals to deal, distributor terminations, group boycotts, monopolies, state law Cartwright Act claims,
grand jury investigations, and price fixing. Chris wrote the firm's Antitrust & Trade Regulation Primer for attorneys and clients, and
regularly counsels many of its private and public clients on antitrust and intellectual property issues arising in the course of
marketing, distribution, pricing, and standard-setting activities.
Named a Northern California "Super Lawyer" in 2004-2008 by Law & Politics magazine, Chris also was cited in the 2003-2008
editions of Chambers USA: America's Leading Lawyers for Business, commended as "a great lawyer" and for his ability to "establish
an immediate rapport, trust, and confidence, in a nonadversarial way." He also was listed as one of the "Top-Ranking Competition
Lawyers in Europe and Northern America" in the Practical Law Company's Global Competition Handbook (2004-2005), and earned a
"highly recommended" listing in the PLC Which Lawyer? Yearbook (2007). Additionally, Chris is listed in the 2006 edition of Best
Lawyers in America and Legal Media Group's Euromoney Guide to World's Leading Competition and Antitrust Lawyers.
Chris has written extensively over the years for publications such as the Antitrust Law Journal, the Antitrust Report, Corporate
Counsel Outlook, and the International Business Lawyer. He teaches an antitrust/intellectual property course for the Santa Clara
University School of Law LL.M. program, and has lectured at the University of California, Berkeley, Boalt Hall School of Law. He is a
regular speaker at American Bar Association and International Bar Association events, as well as other conferences in the United
States and Europe. Chris also served in the Air Force JAG Corps as a military judge.
EDUCATION:
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J.D., New York University School of Law, 1968
Root-Tilden Scholar; Managing Editor, New York University Law Review
B.S, United States Air Force Academy, 1965
With Honors
ASSOCIATIONS AND MEMBERSHIPS:
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Member, Advisory Board, Santa Clara University, High Technology Law Institute
Board Member and Past President, Law Foundation of Silicon Valley
(cont’d)
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(cont’d)
Chris Compton
HONORS:
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Selected for inclusion in The International Who's Who of Competition Lawyers & Economists 2008
Named in the 2007 and 2008 editions of Chambers USA: America's Leading Lawyers for Business
Selected for inclusion in the 2007 and 2008 editions of Best Lawyers in America and Who's Who Legal: California 2007
AV Peer Review Rating, Martindale-Hubbell
SELECT PUBLICATIONS:
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"IP Issues in the Antitrust Treatment of Mergers," The Berkeley Conference on Antitrust in the Technology Economy, June 9, 2005
"Lessons from Trinko for a Consolidating Telecom Industry," 16th Annual Communications and Competition Law Conference,
Madrid, Spain, May 24-25, 2005
"What United States v. Oracle Says about High-Tech Merger Review in the U.S.," corporatefinancemag.com, May 2005
Please see wsgr.com for a complete list of publications.
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Bar of the District of Columbia
State Bar of California
Several U.S. District Courts
U.S. Court of Appeals for the Ninth Circuit
U.S. Court of Military Appeals
U.S. Supreme Court
ADMISSIONS:
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